1. What is the Price Earnings Ratio?

The Price Earnings (PE) ratio is a valuation metric that compares a company's stock price to its earnings per share. It helps investors assess whether a stock is overvalued or undervalued relative to its earnings.

2. How Does the Calculator Work?

The calculator uses the PE ratio formula:

Where:

• \( Price \) — Current stock price (in currency)
• \( EPS \) — Earnings per share (in currency/share)

Explanation: The PE ratio shows how much investors are willing to pay per unit of earnings. A higher PE suggests higher growth expectations.

3. Importance of PE Ratio

Details: The PE ratio is crucial for comparing valuation between companies in the same industry, assessing market expectations, and identifying potentially overvalued or undervalued stocks.

4. Using the Calculator

Tips: Enter the current stock price and the company's earnings per share (EPS). Both values must be positive numbers.

5. Frequently Asked Questions (FAQ)

Q1: What is a good PE ratio?
A: There's no single "good" PE ratio. It varies by industry, growth prospects, and economic conditions. Compare to industry averages.

Q2: What does a high PE ratio indicate?
A: A high PE may indicate that investors expect higher earnings growth in the future, or that the stock is overvalued.

Q3: What does a low PE ratio indicate?
A: A low PE may suggest undervaluation, or that the company has problems that reduce its growth prospects.

Q4: What are limitations of the PE ratio?
A: PE ratios can be distorted by accounting practices, one-time items, and don't account for debt levels or growth rates.

Q5: Should I only use PE ratio for investment decisions?
A: No, PE should be used with other metrics like P/B, P/S, debt ratios, and qualitative factors for comprehensive analysis.